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SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2022
Accounting Policies [Abstract] |
SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. | Basis of presentation of the financial statements
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Prior to 2021, the Company prepared its financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), as permitted in the United States (“U.S.”) based on the Company’s status as a foreign private issuer as defined in the rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). During 2021, the Company determined that it is no longer qualified as a foreign private issuer under the SEC rules. As a result, since January 1, 2022, the Company has been required to comply with all of the disclosure and reporting requirements applicable to U.S. domestic issuers, including preparing its financial statement in accordance with U.S. GAAP.
b. | Use of estimates in the preparation of financial statements
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
c. | Functional currency
| 1) | Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The U.S. dollar is the currency of the primary economic environment in which the operations of the Company are conducted. The consolidated financial statements are presented in U.S. dollars. The functional currency of the subsidiary is the U.S. dollar.
| 2) | Transactions and balances Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non- U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) – historical exchange rates. Currency transaction gains and losses are presented in financial income (expenses), as appropriate.
d. | Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiary Entera Bio Inc. All inter-company transactions and balances have been eliminated in consolidation.
e. | Cash and cash equivalents The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
f. | Restricted cash Restricted cash deposited in an interest-bearing saving account which is used as a security for the Company's office rent and credit card.
g. | Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains cash held in checking accounts and deposits at financial institutions in major Israeli and U.S. banks. Management believes the Company is not exposed to significant credit risk to its current financial institution, but will continue to monitor regularly and adjust, if needed, to mitigate risk. The Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain principal and maximize liquidity. To date, the Company has not experienced any losses associated with this credit risk and continues to believe that this exposure is not significant.
h. | Fair value measurement
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
i. | Employee severance benefits
Under the Israeli Severance Pay Law, 1963, the Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of employment in certain other circumstances. The severance payment liability to the employees located in Israel (based upon length of service and the latest monthly salary - one month’s salary for each year employed) is recorded on the Company’s balance sheet under “Liability for employee rights upon retirement.” The liability is recorded as if it was payable at each balance sheet date on an undiscounted basis. In accordance with Section 14 of the Israeli Severance Pay Law, 1963, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s retirement benefit obligation. The Company is fully relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plan”). With regard to the period before December 2013, the liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Funds in respect of employee rights upon retirement”. These policies are the Company’s assets. The amounts of severance payment expenses were $132 and $137 for the years ended December 31, 2022 and 2021, respectively. The Company expects to contribute to insurance companies approximately $132 for the year ending December 31, 2023 in connection with its expected severance liabilities for that year.
j. | Leases
The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. Lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Sublease income is recognized on a straight-line basis over the expected lease term and is included in other income in our consolidated statements of operations.
k. | Property and equipment
| 1) | Property and equipment are stated at cost, net of accumulated depreciation and amortization.
| 2) | The Company’s property and equipment are depreciated using the straight-line method, which approximates the pattern of usage, over the term of the estimated useful life, as follows:
|  | Years
Computer equipment |  | 3-5
Office furniture |  | 10
Laboratory equipment |  | 7-10
Leasehold improvements are amortized by the straight-line method over the shorter of (i) the expected lease term and (ii) the estimated useful life of the improvements.
l. | Impairment of long-lived assets
The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows. As of December 31, 2022 and 2021, the Company did not recognize an impairment loss on its long-lived assets.
m. | Share-based compensation
The Company grants share options and restricted share units (“RSU”) (together “Share-Based Compensation”) to its employees, directors and non-employees in consideration for services rendered. The Company accounts for Share-Based Compensation awards classified as equity awards, including share-based option awards and RSUs, using grant-date fair value. The Company recognize the value of the award as an expense over the requisite service period. The Company applies ASU 2018-07 (Topic 718) that expands the scope of Topic 718 to include Share-Based Compensation transactions for acquiring goods and services from non-employees. Under the provision of the amendment, the Company measures share-based compensation to non-employees in the same manner as share-based compensation to employees. The Company calculates the fair value of stock-based option awards on the date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term. The computation of expected volatility is based on the historical volatility of the Company’s ordinary shares. The expected option term is calculated using the simplified method, as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis to estimate expected option terms. The interest rate for periods within the expected term of an award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s expected dividend rate is zero because the Company does not currently pay cash dividends on its shares and does not anticipate doing so in the foreseeable future. The Company elected to recognize compensation costs for awards granted to employees and directors conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach. The Company has elected to account for forfeitures as they occur.
n. | Research and development expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred. Grants received from the Israel Innovation Authority (the “IIA”) are recognized when the grant becomes receivable, provided there is reasonable assurance that the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. At the time grants are received, successful development of the related projects is not assured, therefore, grants are deducted from the research and development expenses as the applicable costs are incurred, and presented in R&D expenses, net.
o. | Revenue recognition
The Company recognized revenue from the Amgen Agreement according to ASC 606, "Revenues from Contracts with Customers”. Prior to the signing of the Amgen Agreement in 2018, the Company did not have revenue transactions. ASC 606 Revenue from Contracts with Customer introduces a five-step model for recognizing revenue from contracts with customers, as follows: 1. Identify the contract with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. According to ASC 606, a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Options granted to the customer that do not provide a material right to the customer that it would not receive without entering into the contract do not give rise to performance obligations. On December 10, 2018, the Company entered into the Amgen Agreement for the use of the Company’s oral delivery platform in the field of inflammatory diseases and other serious illnesses. As part of the agreement, the Company received non-refundable and non-creditable initial access payment of $725 from Amgen in January 2019. The Company identified two performance obligations in the agreement: 1) License to use the Company's proprietary drug delivery platform and 2) pre-clinical research and development services (“pre-clinical R&D services”). The preclinical R&D services include discovery, research and design preclinical activities relating to the programs selected by Amgen. The Company determined the license to the intellectual property to be a right to use that has significant standalone functionality separately from the pre-clinical R&D services since the Company is not required to continue to support, develop or maintain the intellectual property transferred and will not undertake any activities to change the standalone functionality of the intellectual property. Therefore, the license to the intellectual property is a distinct performance obligation and as such revenue is recognized at the point in time that control of the license was transferred to Amgen on December 10, 2018. Revenues attributed to the preclinical R&Ds services are recognized during the period of the pre-clinical R&D services, over time according to the input model method on a cost-to-cost basis, since the customer benefits from the research and development services as the entity performs the service. The Company evaluated the standalone selling price of the pre-clinical R&D services at $225 and the right to use the intellectual property at $500. The transaction price was comprised of fixed consideration and variable consideration (capped research and development reimbursements). Under ASC 606, the consideration that the Company would be entitled to upon the achievement of contractual milestones, which are contingent upon the occurrence of future events of development and commercial progress, are a form of variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is highly probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. As of December 31, 2022, the Company did not recognize any revenues from any potential milestone payments. An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs:
| a) | The subsequent sale or usage occurs; and
| b) | The performance obligation to which some or all of the sales based or usage-based royalty has been allocated has been satisfied (or partially satisfied).
As royalties are payable based on future commercial sales, as defined in the agreement, which did not occur as of the financial statements date, the Company did not recognize any revenues from royalties. Revenues attributed to preclinical R&D services are recognized during the period of the pre-clinical R&D services according to the input model method on a cost-to-cost basis. In 2022 and 2021, the Company recorded revenues of $89 and $502, respectively, related to services provided under the Amgen Agreement.
p. | Income taxes
| 1) | Deferred taxes
Deferred income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
| 2) | Uncertainty in income taxes
The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement.
q. | Loss per share
Basic loss per share is computed on the basis of the net loss, adjusted to recognize the effect of a down-round feature when it is triggered, for the period, divided by the weighted average number of outstanding ordinary shares during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted loss per share does not include options, RSUs and warrants, exercisable into an aggregate of 6,255,235 shares and 6,517,102 shares for the years ended December 31, 2022 and 2021, respectively, because the effect would have been anti-dilutive.
r. | Legal and other contingencies
Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s consolidated financial statements. Legal costs incurred in connection with loss contingencies are expensed as incurred.
s. | Newly issued and recently adopted accounting pronouncements:
Recently issued accounting pronouncements adopted
1) | In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The adoption of this guidance did not have material impact on the Company’s consolidated financial statements.
2) | In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company early adopted this guidance effective January 1, 2022 and the impact of the adoption on the Consolidated financial statements was immaterial.
Recently issued accounting pronouncements, not yet adopted
1) | I n June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. The adoption of this guidance will not have material impact on the Company’s consolidated financial statements.

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